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Month: November 2015

One of the many tools in technical analysis are Bollinger Bands, which measure a set standard deviation price has traveled from a defined Simple Moving Average, in a way it’s measuring the volatility of a price move. Many traders often use Bollinger Bands as levels of potential support and/or resistance. However, I’m much more concerned with the distance between the bands themselves. Which, when applied to the Volatility Index, is showing signs of a potential rise in the $VIX.

When the upper and lower Bollinger Bands compress, it’s a result of a lack of change as measured by standard deviation, in this case, over the last 20 trading days. History has shown us that when this compression in the width of the Bollinger Bands for Volatility gets low enough, it has preceded spikes. Below is a chart of the $VIX over the last three years, with the width of the Bollinger Bands shown in the top panel. I’ve put blue dots on the VIX when the width has fallen below 20. While the $VIX hasn’t spiked immediately following every instance of this occurring, many large moves in volatility have followed such a compression in the Bands.

To shine a little more light on this topic, below is a list of times we’ve seen the bands width fall below 20 for the first time in two weeks and the $VIX itself was below 25. While the percentage of the time volatility was higher the next 1, 2, 3, 5, 10, 15, and 20 days ranges from 43% to 65%, what stands out to me is the minimum and maximum changes. Typically the minimum move over the shown periods of time is less than 10%, the maximum advances in volatility have been quite large – the mid-double digits.

Even though the number of instances the $VIX has risen has been low (typically less than 50% depending on the time period), when it does go higher we have seen some very strong moves to the upside in volatility. With the width of the bands now sitting under 20, it’s possible we see volatility pick up over the coming two weeks, if not sooner.

Understanding the probabilities and potential outcomes of historical market data is an important tool to being a successful trader.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.

Let me first say, I apologize for the lack of content on the blog over the last couple of weeks. I’ve become extremely busy and as a result have been posting more of my charts and comments on social media rather than writing longer articles here.

I’ve been asked a couple of times about what sources and tools I use to trade and do research. While this is not a recommendation to use or endorsement for these services, sites, etc. I just want to share a view pieces in my toolbox….

Stockcharts.com
Almost all of the charts I share on the blog and on Twitter/StockTwits come from StockCharts. They are a widely used site with some excellent charting tools and annotation capabilities that I find extremely easy to use. When I arrive to my office one of the first things I do is begin going through my chart book at Stockcharts.

ThinkorSwim
While most of my charting is done through StockCharts, I keep ThinkorSwim (TOS) on my of my monitors during most of the day. Being one of the leaders in trading technology (owned by TD Ameritrade), ThinkorSwim has a clean aesthetic with reliable (in my opinion) pricing information. I use TOS to keep up with what’s moving on my watch list and portfolio, as well as intraday movements in things like the 10-year Yield, Gold, S&P 500, Volatility, and Crude Oil.

TweetDeck
I would not be the trader I am today without the relationships I’ve built on social media; specifically through Twitter and StockTwits. I use Tweetdeck to keep up with my stream on Twitter, with one column dedicated to a small(ish) list of traders I’ve cultivated over the last few years. While I follow over 800 accounts, it’s this list that I keep my attention on and make sure to not miss what they have to say. I’ve learned a great deal from those active on social media, I owe them quite a bit.

SentimenTrader
Through my studying for the Chartered Market Technician designation I learned more of the importance of sentiment data. SentimenTrader is the gold-standard in my opinion for curating all that is sentiment, from surveys, to fund flows, to proprietary data sets, to COT data, they have it all. Each morning I make a point to read their daily newsletter and often learn something new about a market move I wouldn’t have been able to read about anywhere else.

Blogs/Media
I’ve cut back quite a bit on the amount of content I read. I use to track 50 or more blogs and new sites, not wanting to miss a beat. Now, I read just a handful and I feel I retain and know more than I do when the list was 5 or 10 times as long. I stick with Josh Brown, SeeitMarket, JC Parets, Barry Rithotlz, Jesse Felder, Abnormal Returns, Dash of Insight, DShort, Jon Boorman, Ryan Detrick, Michael Batnick, Dana Lyons, to name a few, as well as some of the major sites like Business Insider, Bloomberg, and CNBC. Honestly, Josh and Tadas do such a great time with their daily link fests that I mostly rely on them to scour the financial web for stories to read, big props specifically to both of these great guys.

Bianco Research
While my main focus is technical analysis, I still follow economic trends and read what’s going on in the rest of the non-price movement world. My firm is a subscriber of Bianco Research, who puts out an excellent piece every morning and hosts a thought-provoking webinar every couple of weeks. Jim Bianco does a great job at combining news stories with his own commentary on the market and economy.

Excel
What good are we without the old standby that is Microsoft Excel. While I don’t use it as heavily for charting as some, Excel is still an excellent tool to analyze data.

Disclaimer: Do not construe anything written in this post or this blog in its entirety as a recommendation, research, or an offer to buy or sell any securities. Everything in this post is meant for educational and entertainment purposes only. I or my affiliates may hold positions in securities mentioned in the blog. Please see my Disclosure page for full disclaimer. Connect with Andrew on Google+, Twitter, and StockTwits.